TOPICS > Economy

Dollar’s Falling Value Ripples Through U.S. Economy

March 4, 2008 at 6:35 PM EDT
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As the value of the dollar has fallen, the U.S. economy has had to adjust in a multitude of areas. While some sectors have benefitted from cheaper U.S. exports, others have felt the pinch of inflation. Paul Solman examines the impact of the dollar's value.
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JIM LEHRER: Now, a fast-moving economics story. Our economics correspondent, Paul Solman, reports from California on some of the many impacts of the falling dollar.

PAUL SOLMAN, NewsHour Economics Correspondent: At the booming L.A. company Not Your Daughter’s Jeans, their hottest item, the Tummy Tuck, around $100 a pair at stores like Nordstrom’s.

GEORGE RUDES, CEO, Not Your Daughter’s Jeans: Let me show you what the Tummy Tuck is.

PAUL SOLMAN: Company CEO George Rudes.

GEORGE RUDES: We’ve taken the stretch out of the garment and we have passed it to the back of the garment so it flattens the tummy.

PAUL SOLMAN: This, no give.

GEORGE RUDES: No give.

PAUL SOLMAN: Here, plenty of give.

GEORGE RUDES: Here it gives. So we’ve transferred it from here to the rear.

PAUL SOLMAN: And that’s what you’re wearing, too, is the same?

GEORGE RUDES: I’m wearing the men’s jeans that we’ll now be going into production on.

PAUL SOLMAN: The Tummy Tuck technology is patented. The quality control is hyper-vigilant. And George Rudes is no slouch at peddling his product.

GEORGE RUDES: You’re going to love this jean. I want you to stay dressed as you are. Just try this jean on, because these we’re making now for men. You’ll feel the stretch, and you’ll tell me how you feel about it. He’s going to love it.

PAUL SOLMAN: OK, here we are, George.

They felt good, but a tad tight. George, however, was undeterred.

GEORGE RUDES: Your backside looks great.

PAUL SOLMAN: Unabashed.

GEORGE RUDES: Be careful. The women will hit on you.

Weak dollar fuels U.S. exports

George Rudes
CEO, Not Your Daughter's Jeans
The biggest part of the business that's growing is our export market. I would say that we're going to almost triple our exports this year over last year.

PAUL SOLMAN: Now, beauty may be in the eye of the beholder, but Tummy Tuck's take-off is there for anyone to see.

What's also apparent is one of the reasons for it: the weak U.S. dollar, leading to expanding sales abroad.

GEORGE RUDES: The biggest part of the business that's growing is our export market. I would say that we're going to almost triple our exports this year over last year.

PAUL SOLMAN: The economic logic is simple enough. The more dollars you can buy with the same amount of another currency, the more stuff you can buy that's priced in dollars. American-made stuff becomes cheaper abroad; U.S. exports go up.

As a result, says Rudes...

GEORGE RUDES: We're in Australia, we're in New Zealand, we're in Canada, South Africa, Germany, France, the Scandinavian countries, the Benelux nations, the U.K., Ireland. It's been simply fabulous.

PAUL SOLMAN: But, of course, this is a small company. Most of the 500,000 or so Tummy Tucks exported annually are air-freighted so foreign customers, mainly in Europe, get the trendiest U.S. denims ASAP.

Even if, however, they were all shipped, which takes weeks, they'd barely fill 25 of these cans. On a boat like the Denada here headed back to Asia, it was loading about 2,000 cans as we watched.

The story at the port, though, it turns out, is the same as at the jeans factory: Exports away! And that's new here, because for years all these cans arrived full of imports, as they still do, but many went back empty.

The Port of Long Beach's Don Snyder.

DON SNYDER, Director of Trade Relations, Port of Long Beach: At one point, it was three import containers for every loaded export container.

PAUL SOLMAN: That means two-thirds of the cans used to take the slow boat to China vacant.

The weaker dollar, however, has spurred exports to the point that 80 percent of these Denada cans were stuffed to gills, symbolic of U.S. exports in general in 2007, as the dollar has dropped against currencies as varied as the Brazilian real, the Australian dollar, the Canadian loonie, and, of course, the euro.

DON SNYDER: It's making our goods quite a bit more competitive on the world markets. Exports are up over 20 percent this year and whereas the imports have tailed off just a little bit. It's the first slight decrease we've had in a number of years.

PAUL SOLMAN: But if it's not Tummy Tucks, what is in the cans? This. Lots of this.

The cars come in. We scrunch them up, and then send them back out, is that what's going on?

DON SNYDER: That's an accurate description.

PAUL SOLMAN: And then, topping U.S. exports in volume, there's this. Clark Hahne, on the right, buys trash from places like this.

CLARK HAHNE, Waste Paper Trader: You have the blue bin and the black bin. This is the blue bin, where the recyclables are in. The trucks go around. They dump it off here.

PAUL SOLMAN: His partner, Jimmy Yang, sells it overseas.

JIMMY YANG, Waste Paper Trader: Most of this material goes to Asia. It gets sorted out as different grades of paper, and it ends up in a paper mill in Asia.

PAUL SOLMAN: So when we're seeing all these containers being loaded on, what percentage of them have waste paper in them?

JIMMY YANG: One in three.

PAUL SOLMAN: The trash is exported to Asian mills to be turned back into paper, imported back here. So with cardboard, as with cars, we import, use and abuse, export. And the weak dollar helps the U.S. versus garbage-generating rivals.

JIMMY YANG: It gives us the edge when we're competing against Europe and Japan, because they're all shipping waste paper, recycled products to China, to Asia.

PAUL SOLMAN: But because of the falling dollar relative to the euro and yen, U.S. waste paper is now cheaper. And so...

JIMMY YANG: In the past half-a-year or so, it seems like more of the trade is getting more balanced.

PAUL SOLMAN: In other words, just what a weaker currency is supposed to do: encourage exports, discourage imports, and thereby help trade back into balance.

Imports are more and more expensive

Marvin Jacobs
Fabric Distributer
I was there years, for 30 years, I never had any issues. Now they don't want the dollar. So you tell me where your cheap dollar is taking us. It's killing us.

PAUL SOLMAN: So then, with U.S. exports taking off, is the weak dollar the answer to our economic prayers? Well, not necessarily. Everything from abroad now costs more dollars. It's even true at Tummy Tuck.

GEORGE RUDES: It hurts us, the weak dollar, because everything that we buy is imported. There's nothing manufactured in the United States anymore, not fabric, not zippers, not buttons, not thread.

PAUL SOLMAN: And so how much are your costs up?

GEORGE RUDES: I would say they're up about, oh, maybe close to 10 percent. Instead of selling the jean for a $50 bill, you now have to sell it for $53. And the retailer has to turn around and make his margin on the fact that he's paying $3 more.

PAUL SOLMAN: So the price goes up here in America. That, in a word, is inflation: more expensive blue jeans, more expensive lots of things, just what the workers at Not Your Daughter's Jeans are noticing.

Cost of living for you, has it been going up?

EMPLOYEE: Definitely, everything, starting with gas.

EMPLOYEE: Groceries, meat, milk, of course, has gone up considerably.

EMPLOYEE: Everything has gone up pretty much.

EMPLOYEE: It seems like the more expenses I have, the less money I have, also, you know?

PAUL SOLMAN: When we'd asked George Rudes if we could interview his employees about inflation, he first surveyed them himself. When we arrived, we spotted flyers throughout the plant announcing that supposed economic impossibility: a free lunch.

GEORGE RUDES: Frankly, it started today, because when you guys were discussing the dollar and the effects, I just felt terrible. I mean, after talking with a few of them, the cost of living, with everything else, I said, "Let me see what I can possibly do," at least once a week give them a free lunch.

PAUL SOLMAN: It's costing the company an extra $600 a week, but that will mean lower profits or higher prices to cover the cost, another nudge to inflation.

MARVIN JACOBS, Fabric Distributor: George, listen, I got some bad news for you.

PAUL SOLMAN: Meanwhile, as we were shooting, fabric supplier Marvin Jacobs happened by to deliver more inflation news: a rise in the price of cloth.

MARVIN JACOBS: The U.S. dollar is so weak that the prices have gone up in China. The order you placed with me last week for 50,000 yards? I need 10 cents more a yard.

PAUL SOLMAN: Jacobs says he's not making a dime on this price increase. Moreover, the weaker dollar is costing him a bundle when he travels abroad to buy the fabric.

MARVIN JACOBS: I just came back from Europe. I was there for three weeks. It was so expensive, it was painful.

I was in Turkey. I went into a restaurant. And on the menu, it had a corned beef sandwich. It was $38 U.S. You go for a Coca-Cola, it's $7. They wouldn't take U.S. dollars. They would only take euros.

I was there years, for 30 years, I never had any issues. Now they don't want the dollar. So you tell me where your cheap dollar is taking us. It's killing us.

Weak dollar just market adjusting?

Edward Leamer
Director, UCLA Anderson Forecast
We're living beyond our means. We've got to tighten the belt. That means less spending on foreign products, fewer imports.

PAUL SOLMAN: And yet when it comes to China and its currency, that is, it seems, U.S. policy. Both Congress and Treasury Secretary Henry Paulson have been urging China to let its currency rise against the dollar to make U.S. exports even cheaper, Chinese imports more expensive.

HENRY PAULSON, U.S. Treasury Secretary: The currency is very important and the currency needs to appreciate. And so we're attempting to persuade them that it is very much in their best interest and in ours for them to speed up that process.

PAUL SOLMAN: Though the administration denies it, and there are plenty of other factors determining the dollar's value, this is, in effect, a weak dollar strategy, says UCLA macroeconomist Ed Leamer, and pretty much inevitable after so many years of spending more abroad than we earned.

EDWARD LEAMER, Director, UCLA Anderson Forecast: We're living beyond our means. We've got to tighten the belt. That means less spending on foreign products, fewer imports.

And we're experiencing that in the last year, as a matter of fact. We're not as wealthy as we thought we were, which requires some significant belt-tightening and some planning about our futures.

PAUL SOLMAN: That's what the weak dollar is, says Leamer, the embodiment of a new, lower U.S. standard of living, at least for the time being, while the rest of the world splurges for a change.

Pedro Rosa is a UCLA MBA exchange student from Portugal. He was expecting to have to tighten his belt when he came to America, but...

PEDRO MAYOS-ROSA, UCLA Student: Actually, all the prices are 70 percent of the price, the usual price for me. And I can go to the fancy restaurants, rent good cars, convertibles, et cetera, enjoy the sun in L.A. And also, at the end, you're going to spend more money, because you feel like, "OK, I'm rich. I'm a rich person, so let's do it."

PAUL SOLMAN: The converse, of course, is that, with every dip of the dollar, Americans overall feel less like rich people. That's what fewer imports mean.

And then, eventually, if we keep importing less and exporting more of our now-cheaper goods to foreigners, both our balance of trade and the dollar -- all else equal -- would finally turn positive as the global economic system re-adjusts.